It’s easy to assume that anyone with an “advanced degree” is exempt from overtime. For physicians managing a practice, that assumption can be costly. The framework for determining which employees are exempt from overtime pay is established by the federal Fair Labor Standards Act (“FLSA”) and the New York Labor Law (“NYLL”).
What Is the FLSA and How Does It Apply to Overtime Pay?
The FLSA is the primary federal law governing minimum wage, overtime pay, recordkeeping, and youth employment standards. Under the FLSA, non-exempt employees must be paid overtime at a rate of no less than one and one-half (1½) times their regular rate for all hours worked over forty (40) in a single workweek. The NYLL has similar overtime provisions and generally follows the FLSA in areas its own provisions do not address.
What Individuals are Exempt from Overtime Pay Under the FLSA and the NYLL?
For an employee to be exempt from overtime wages under both the FLSA and the NYLL, the employee must pass three tests: (1) Salary Basis Test, (2) Job Duties Test, and (3) Salary Level Test.
The Salary Basis Test.
Under both the FLSA and NYLL, an exempt employee generally must be salaried and paid a predetermined, fixed salary. However, the FLSA provides that licensed physicians engaged in the practice of medicine need not meet any of the three tests. “Physician” here includes podiatrists, dentists, veterinarians, and optometrists. This carve-out also applies to physician residents and interns holding a requisite academic degree (e.g., M.D., D.O., D.P.M.) but does not extend to pharmacists, PAs, NPs, RNs, or similar roles. Most PAs, pharmacists, and certain practice staff, such as practice managers, are salaried employees and therefore may be exempt if they meet the following two tests.
The Job Duties Test.
Employees properly classified as professional, administrative, or executive employees under both the NYLL and FLSA pass the Job Duties Test. These are not formal labels preassigned by a government agency; rather, an employer determines the classification by reviewing the employee’s actual job duties. The classification is based on general work duties, not job title alone, and is usually scrutinized only if an employee disputes their overtime status. Executive employees carry out managerial duties such as managing the practice or office, regularly directing two or more employees, and having sufficient authority and discretion to hire, fire, or make other employment-status decisions. Practice managers generally qualify because they oversee office operations, supervise staff, and hold hiring/firing authority.
Administrative employees’ primary duties involve performing office or nonmanual field work directly related to management or general operations, regularly assisting an employer or executive employee, and exercising significant discretionary powers in performing their duties. Compliance officers and human resources personnel generally qualify because they perform office work, assist their employer, and exercise discretion.
Professional employees must meet three criteria to pass the Job Duties Test: (1) their primary duty requires advanced knowledge in a field of science or learning customarily acquired through prolonged specialized intellectual instruction and study, (2) their work requires regular exercise of discretion, and (3) their work is predominantly intellectual and varied in character such that output cannot be standardized in relation to a given time period.
Whether an employee qualifies as a “professional employee” is determined on a case-by-case basis, and no job title alone guarantees the classification. The analysis focuses on whether the job’s primary duty requires specialized academic instruction and uses advanced knowledge typically acquired through prolonged study. “Advanced knowledge” means the employee exercises discretion and judgment characteristic of the profession at issue. Although the required advanced knowledge need not come from a specialized advanced degree, an employer’s minimum academic qualifications and whether most employees in that role hold such a degree are considered. Work is “predominantly intellectual and varied” when it is not routine mental, manual, mechanical, or physical work.
Pharmacists, PAs, and RNs (not LPNs) are generally considered professional employees because of their advanced knowledge, routine exercise of discretion, and intellectual work.
The Salary Level Test.
The salary thresholds for the Salary Level Test differ under the FLSA and the NYLL. Employees working in New York must meet the NYLL salary level, while employees in other states must meet the FLSA salary level unless their state imposes its own test for overtime exemption. Under the NYLL, the Salary Level Test applies only to executive and administrative employees. New York defers to the FLSA salary level for professional exempt employees. As of this article’s publication date, for employees outside New York City and Nassau, Suffolk, and Westchester counties, the test is met at a minimum salary of $1,199.10 per week ($1,275.00 per week for New York City, Nassau, Suffolk, and Westchester County employees).
Under the FLSA, the Salary Level Test is met when an employee earns more than $684 per week, regardless of employee type. This means that New York salaried professional employees who satisfy the professional duties test and earn above $684 per week generally meet the salarylevel requirement for overtime exemption.
If My Employee Meets the Criteria, Are They Exempt from Overtime Pay?
If an employee passes all three tests, they are overtime-exempt and are not required by law to be paid overtime for working over 40 hours in a workweek (although an employer can still voluntarily agree to pay overtime). If an employee fails even one test, they must be paid overtime. Failure to pay an eligible employee overtime could require the employer to provide back pay for owed overtime wages. For this reason, it is imperative that practice owners and managers understand these rules to ensure employees are properly compensated and the practice avoids liability for unpaid wages.
Practice owners with questions about the topics outlined in this article can contact Lippes Mathias LLP health care team members Jennifer E. Forward (jforward@lippes.com) or Marc S. Beckman (mbeckman@lippes.com).
